FT beyond brics - Indian exporters and the falling rupee. Capital flight is never good for exports. With that in mind, though, once it becomes apparent there's no September taper, maybe the EMs will catch a strong bid?

FT Alphaville - the pictorial Jackson review Indian FX swap. Apparently, Rajan is impressing people. I think India will eventually screw everything up, but I don't like being long a position whose chief opponent is being hailed with new buzzwords by the media after one day.

Wednesday, September 4, 2013

RockStar Resources today announced the creation of a new precious metals mining company with a focus on identifying and investing in high-quality mining exploration projects which are approaching feasiblity, to help advance those projects toward operations and production.

"Rockstar" Resources, eh?

Frankly, were they aiming to be true rockstars, their NR would read more like this:

RockStar Resources today announced the creation of a new precious metals mining company with a focus on playing bad music loudly, snorting great bowls of coke and screwing hot starlets in the pooper, with the aim of dying in a pool of vomit* at a young age.

Get it right, guys.

* - Theirs or somebody else's. Nobody will know whose it is; you can't dust for vomit. It goes to eleven, etc.

Bonddad - balance sheet recession about over. The reason I listen to people like Bonddad, and not your average dumbass blogger or newsletter writer, is because Bonddad can give me significant economic data instead of idiotic political platitudes copied from a clueless fantasy website like Mises.org.

Not much to say. As already noted to someone in an email, gold went down today because the cokehead clown who bought a few contracts expecting a Syria war decided to dump at 9AM when the Senate agreed on a definition of limited engagement.

Other than that everything's boring. Everyone still wants to stay out of the market cos they expect the Republican Taliban to carry out another suicide attack on Congress. Because America Jesus Hallelujah.

So here's the news.

FT beyond brics - gloomy India forecasts. I don't expect the new bank dude to accomplish anything. It's going to take the BJP coming into power, and that'll be next spring.

Reuters - good monsoon equals good gold demand. Good ol' libertarian sugar cane farmer and Ludwig von Mises fan Nilesh Jagtap plans to buy 30 grams of gold this year, compared to 20 last year. Okay? Multiply that by, say, only 10 million households. Okay? That alone would mean a hundred million grams or so of surplus demand. And here's the money shot:

In 2010, the last year that rains were heavily above average, demand soared 37 percent in the fourth quarter after harvests. At current prices a similar rise would be worth $4.7 billion, according to Reuters calculations.

Now do you understand why I think the paper market is chickenshit compared to India and China? Ooh, so Whitey in London buys stupid paper contracts that he cancels out weeks later for cash, meaning no net impact to physical flows, eh? Yeah, well India's going to gobble up a hundred more tons of gold this year. Than usual. So fuck you. Also, I might add, fuck you.

Reformed Borker (Bork Bork Bork!) - 361 Capital weekly research briefing. Among other things, he thinks the financials are hurting because the cokeheads are worried about a collapse in housing. Cuz, well, nobody ever bought a house at 5% before.

Michael Shaoul - ISM August survey. This is what an economy looks like when it's recovering. Also, this is what a blogger who isn't an ignorant uneducated clown talking out his clueless ass about the ISM looks like.

Calculated Risk - July construction spending. Since too many people are dumbasses who don't pay attention to him, let me point out that the reason McBride expects private non-residential to pick up is because the architectural billings have gone up this year. This is what an economy looks like when it's recovering.

Bespoke - financials kinda suck. Financials are the sector with the lowest % above SMA(50). Is this because the buying on yield widening got overdone, you think? Or maybe financials backed off the most because the optimism about the taper end has now bled off? Has the market already figured out that the extraordinary measures don't end in September?

Calculated Risk - GDP drag from state and local governments. Bill McBride thought a few months ago that the drag was done; turns out it's not. Still, when the state and local cuts stop, it'll stop subtracting from GDP, and that'll be good.

Reuters - beatings and evictions reveal ugly side of China's debt pile. Also of note, Bill Bishop's kept pointing out that the regions are refusing to participate in Beijing's real estate registry program - as he notes, it's because the registry will make it easy to track down all the corrupt officials who have more real estate than they could possibly have afforded if they weren't corrupt.

FT Long/short - Emerging markets and 1997. This is what emerging markets look like at the end of a secular cycle. The only way their outlook improves is if UST yields go down from here, not up.

Marginal Revolution - how much can Indian exports go up? Good article rom someone who seems to really be smart. I'd add that exports could actually go up a lot this year alone, if only India bothered to export their surplus grains instead of letting them rot. They could go up even more if only India would stop passing law after law against business. They could go up a lot more in the next few years, if only India bothered to build out electrical generation and distribution infrastructure to allow more irrigation and reduce dependence on diesel for local generation. They could go up even more in the next few years if India simply paved a few fucking roads. But instead? Singh and Chidambaram raise the duties on gold imports. What does that accomplish?

More recently, an extra element of the vicious circle has become apparent. Indian citizens, noting that the government is suppressing the inflation rate through the use of unsustainable subsidies, have increasingly preferred to hold gold instead of rupees. This not only points to a dangerous rise in underlying inflation expectations, but also adds to the current account deficit as gold imports increase. The most recent quarter has seen a record tonnage of gold imports, according to the World Gold Council.

That is a self-reinforcing long gold short rupee trade, to the tune of 120 net tons this past quarter according to the accompanying WGC data. If you're taking the opposite side of that trade, you're a buttfuck stupid idiot for being so ignorant about India.

Oh, and by the way. When your nation's currency's chart looks like this

then you, as Prime Minister, need to be seen to be doing something other than raising duties on gold imports. Because frankly, Singh's responses so far have been utterly buttfuck retarded and have only served to demonstrate that he has no fucking clue what to do in the face of a rupee cliffdive.

Bloomberg - India growth slows to four year low. And that's the problem: not gold imports, not even fuel imports. The problem is that this country can't grow because they're incompetent. Indians know this, so they're going long gold short rupee.

Stonekettle Station - Labour Day, then and now. The world of 100 years ago that he's describing is the Libertarian paradise that the goldbugs want to see return: company towns, child labour, and early deaths for the proletariat. If that's the world you want to live in, perhaps you should just move to Vietnam or Bangladesh.

Since their introduction a little over a decade ago, gold-backed exchange-traded funds (ETFs) have accumulated more than $500 billion in assets. Investors’ most common rationale for owning gold is that it acts as a hedge against financial instability or a sudden shock to the markets, such as the 9/11 attacks. But what if the flow of assets into gold ETFs plays a greater role in the price of gold than do investors’ fears of instability? Is gold the hedge investors believe it to be?

A just-released academic study, Exchange-Traded Funds on Gold – A Free Lunch?, provides some valuable clues to the answers to those questions. It was written by Dirk Baur, a professor at the University of Technology in Sydney, Australia.

Baur looked at data from 84 physical and synthetic ETFs (including exchange-traded notes and exchange-traded commodities) since the first one was introduced in 2002. His most interesting finding is revealed in the graph below:

The price of gold has increased almost lockstep with the assets held in ETFs, particularly in the last three years. The question investors must answer is whether gold prices are being driven by the liquidity and other advantages (such as reduced storage costs) that ETFs provide, rather than by fear of systemic risk.

Baur did not answer that question, nor can he. Indeed, gold cannot be valued by traditional analytical techniques using cash-flow forecasts and discount rates. Investors must look for clues in the historical data, assess whether it has behaved in a manner consistent with a given model and forecast whether that model will be viable in the future.

Mr Huebscher, welcome to 2013, where this is not news, and where many people (not just me) have already answered all of your concerns.

1. Did you notice you're comparing "market cap" of gold ETFs versus the price of gold? Did you? What do you think determines the market cap of a gold ETF? Perhaps it often has something to do with the gold price? Hm?

2. Yes indeed, "the price of gold has increased almost lockstep with the assets held in ETFs". That's because the gold price is determined by supply and demand, and ETF flows show up as supply when being sold and demand when being bought. Have you heard of "supply and demand"? You might want to fucking look it up.

3. A bit of a niggle here, but ETF gold is not a hedge against fat tail risk. It's not, because GLD (and other ETFs) have counterparty risks; imagine what would happen to GLD if HSBC and JPM went under - and that's a fat tail type event that we can conceive of, given the past 5-6 years in the markets. The same goes for gold options, which have massive counterparty risk - as Peter Brandt found out when PFG Best went under and took his money. The only gold that works as a true hedge is physical in personal possession. And it's a hedge against existential risk and not fat tail risk, because in a fat tail liquidity event gold is easiest to liquidate and thus crashes hard; you cannot construct a portfolio where gold acts to counteract fat-tail downside.

4. You can answer the rest of your questions by simply going to the World Gold Council and downloading their quarterly gold supply & demand reports, and then comparing quarterly physical demand with ETF flows data. ETF holdings are not terribly significant compared with yearly Indian & Chinese consumption; net flows are, but total holdings (especially remaining holdings after the last half year of outflows) aren't. Indeed, even Western personal bullion holdings probably dwarf all ETF holdings.

5. You're right, though, that gold can't be valued by traditional financial analysis - except, of course, by looking at supply and demand trends. Even then, there's going to be a large hi-f noise signal on top of the longer trend. But the financial value of gold only becomes apparent in limit situations where the financial system breaks down (a la 1918 Russia or 1948 Hungary, not the 2008 banking crisis); it sort of sits outside finance in the way that God sits outside science. When finance ends, gold still works: if Yellowstone erupts, the only asset that won't go to $0.00 is gold.

I suggest, Mr. Huebscher, that you scan the pages of Business Insider and the free blogs at FT once in a while, so that you remain up-to-date on this funny new-fangled thing called "the market".

Monday, September 2, 2013

Times of India - there's no plan to convert temple gold into bullion. As noted in the article, the Congress Party would basically be handing power to the BJP if they tried this. But of course Zerohedge isn't going to tell you that because they have to keep stoking the conspiracy theories.

Reuters - India's crisis within a crisis. Basically it's a large background article on the dysfunction of parliament. Though I still strongly disagree with the article's suggestion that Chidambaram is competent - to me, he's been reacting like a spazz to every problem.

Oh and the Sunday night Globex smackdown in gold has somewhat reversed by now, and silver is even up. I guess the gold shorts aren't going to get what they want?